KEEP STAFF SWEET - Plummeting pensions and dismal stock options mean there's not much inside the corporate sweetie jar at present. But with new flexible benefits, firms can offer tailored perks packages, as well as making the best of a lean time. Andrew Saunders reports.

by Andrew Saunders
Last Updated: 31 Aug 2010

Plummeting pensions and dismal stock options mean there's not much inside the corporate sweetie jar at present. But with new flexible benefits, firms can offer tailored perks packages, as well as making the best of a lean time. Andrew Saunders reports.

Life at the coalface of UK plc is not at its brightest at the moment. Budgets are down, workloads are up and employees are under pressure to do more and more work with fewer and fewer resources. And while you're busting a gut for the company, what do you get in return? Not much - in the current economic climate you're about as likely to be given a pay rise as Gordon Brown is to be found investing in euro futures.

There's always the performance bonus to fall back on - except that all your clients are in the same boat, so no-one's spending and your chances of hitting target have gone south faster than the exchange rate. As for those stock options you were 'lucky' enough to pick up in the boom years, they are now so far under water that you can't see the bubbles. The days when you could give yourself a warm wealthy glow by checking the share price may never return.

All this doom and gloom leaves companies and managers facing big challenges, not the least of which is: how do you keep employees motivated, enthusiastic and eager to succeed when they are surrounded by fiscal despondency and you haven't got the budget to pay them as much as you'd like to? After all, in hard times like these you need to hang on to your good people and keep them at their best so that when the recovery comes you're ready to make the competition eat your dust. This is the motivational landscape in which employee benefits operate.

Benefits are the equivalent of a corporate sweetie jar, allowing a business to show its appreciation by making life that little bit better, easier and more comfortable, encouraging top performers to improve further and urging others to follow their lead. And - perhaps most importantly - allowing a company to show respect for its workers, and nurture loyalty and gratitude in return. As the good book says: 'Cast your bread upon the waters, for after many days you will find it again.'

Benefits have traditionally been based around the holy trinity of holiday, pension and private medical insurance, handed out according to age and seniority rather than desirability or choice. But employers are coming to realise that the benefits people want depend on their individual circumstances.

'In terms of age and background, we have a much more diverse workforce now than we did 10 years ago, with a much wider range of needs,' says Tim Fevyer, senior manager for compensation and benefits at 70,000-strong Lloyd's TSB Group, which introduced a state-of-the-art flexible benefits package in January this year. 'We asked people what they wanted and there was overwhelming interest in flexible benefits. It lets people tailor their package.'

The Lloyd's TSB scheme is branded 'Flavours', and all staff are allotted a percentage cash sum (4%) on top of their monthly salary to spend, as they wish, on a range of benefits offered by the company. They can add up to 50% of their actual salary to that allowance, or opt to take the cash and no benefits. About 50% of staff have signed up (compared with an expected 20%), choosing benefits in three key areas: health (full medical insurance as well as dental care and cash plans); leisure (holiday, retail and childcare vouchers, tax-free home PC purchase and a learning account); and planning for the future (pension, accident, critical illness and life assurance cover). Because all the benefits are 'purchased' out of salary, there are double savings on tax and National Insurance. The most popular option so far has proved to be holiday trading - people are allowed to buy or sell up to five days' holiday a year.

The company also offers share ownership, including a save-as-you-earn plan that after five years can be used to buy shares priced as they were at the start of the programme. In today's depressed market, says Fevyer, these options are starting to look like a good long-term deal once again.

Long-term incentives encourage people to stay, but a top-notch benefits programme is also a key weapon in the recruitment battle. 'We need to create a compelling employment offer, because in the long term we are engaged in stiff competition for the most talented people,' says Fevyer.

But however good the deal, there's more to life than full Bupa cover and 10% off at Sainsbury's, according to Richard Brown of strategy consultants Cognosis. 'The time is right for companies to start thinking beyond money as the major means of motivating people. What bosses really want is commitment, and you have to win hearts as well as minds to get that.'

If the 1980s were all about money, and people were only as good as their last bonus, he says, in more recent years time has become the new money, and quality-of-life issues have come to the fore. 'Benefits that replenish the psychological contract are becoming the most valuable.' So holiday arrangements, career breaks and the potential for flexible hours and homeworking are now appearing on the agenda.

There's certainly plenty of evidence that whereas, when asked what they want, people will say more money, what actually drives them in their work and life are softer, less easily defined needs.

A recent survey conducted by American Express and incentive provider Maritz found that nearly a fifth of people who receive cash bonuses can't remember what they spent the money on, and that the most popular use for a cash bonus was simply paying the bills. Only 9% of the 1,002 respondents used the dosh for its intended purpose of treating themselves to something memorable.

Which goes to show that, although 60 years have elapsed since the psychologist Abraham Maslow came up with his Hierarchy of Human Motivation, his theory remains watertight. Maslow proposed five levels of need - Physiological, Safety, Belonging, Esteem and Self-Actualisation - each one following on from the last, a kind of motivational ladder. When prehistoric man first took shelter in a cave and lit a fire, he was satisfying his lowest - physiological and safety needs. When a Buddhist achieves a state of nirvana, she is satisfying the fifth and highest - self-actualisation.

In the context of employee benefits this is more relevant than it seems, because psychologically we remain closer to that caveman than we like to admit. The cave these days might be a three-bedroom semi with garden and off-street parking, but the fact remains that once we've got enough to feed, clothe and house our families, money is a low-level motivator for most people. The dash for cash is soon replaced by the desire for recognition, status and ultimately (although Maslow reckoned that a lot of us never get this far) the need to express yourself through your work.

So job satisfaction, enjoyment and feeling part of a social group at work become some of the most effective benefits you can offer - as well as being cheap as chips in comparison with private health insurance and a dental plan. If you can add to that, says Brown, things like career breaks and the opportunity to do voluntary work - to put something back - then you and your employees should have a psychological contract to be proud of. 'Good management and a feeling of being involved and recognised are some of the best benefits you can give. The cost is in management time rather than money and they have a disproportionately positive effect on people's attitudes to their employers.'

So we're back, inevitably, to the budget. Flexible benefits can cost a good deal to implement, but this isn't a one-way street. Schemes like Lloyd's TSB's Flavours are designed to be tax-efficient for the business and to be used to save money and to transfer risk away from the company and onto the individual - which is what happens every time yet another copper-bottomed final-salary pension scheme closes to new members.

It comes as no surprise to learn that keeping a lid on the benefits budget was a key driver for troubled pensions and life insurance provider the Prudential, which overhauled its package recently, introducing a flexible benefits plan earlier this year. 'It's a very good cost-control measure, allowing us to manage our providers very closely and prevent costs spiralling,' says the lady from the Pru, Helen Jackson, head of employee relations and reward. 'And although we haven't given people more than they used to have, we have given them the choice of how to spend their (10%) allowance.'

According to a survey of 134 British human resources departments by benefits-and-reward specialists Towers Perrin in January, flexible benefits are the Next Big Thing, with nearly 70% of those polled intending to make their packages more flexible over the next five years. But it's early days yet, with only 15% actually offering any kind of flexibility at the moment.

If your employer is one of the rigid 85%, there is one thing you can do to cheer everyone up a bit while you wait for the board to unbend.

Make a noise about the benefits you already offer. It's a racing certainty that if you show people what their existing benefits are actually worth it will come as a very nice surprise. And like a smile, it costs absolutely nothing.

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